Monthly Archives: Sep 2014

And finally, the results of the Analyst Value Survey, which canvassed the views of 1093 enterprises, analysts and vendor consumers of research, have been released. This is - by some margin - the largest study ever conducted to gauge the influence and value of the industry technology analyst firms, and even the most optimistic followers of HfS couldn't have expected this result:

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And not only did we enjoy a huge uplift in influence of the last 12 months, this also also builds on our influence increase over buyers and providers the previous year (see last year's results):

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I really don't want to bore you with a sales pitch as to how we have been achieving this recognition (hopefully you have your own ideas, and if you were one of the nice people who voted for us, I thank you personally - and owe you a drink).

All I will say is "thank you" to the HfS team for working their socks off and making this all possible. And also a thank you to YOU for reading our stuff, saying great things about us and believing in our approach and determination to change the face of the analyst industry forever.

I would also like to thank the hard-working people at Kea Company, which today has adopted the mantle of "analyst of the analysts" for pulling off such a terrific and comprehensive study.

If you would like to purchase a full copy of the results, you can access them here. If you are a provider marketer who needs some conclusive data and a decent steer where to invest your analyst relationship time, you could to a lot worse than spend some time with these guys.

We asked our EVP of Research, Charles Sutherland, to share the team's thoughts on the event and what were the key themes that came out during the various sessions and how those relate to NASSCOM's ambition to grow Business Process Management (BPM) exports from $20 Billion in 2014 to $50 Billion by 2020. The simple fact that Charles actually shaved for this conference tells you in was quite the big deal...

Phil, let me begin by first acknowledging strong attendance (~500 people) for this year's Summit and the high level of engagement from across the NASSCOM membership during the day and a half of sessions. The theme of the Summit was what NASSCOM member's could be doing to drive hyper-growth to bring the exports of BPM services from India to $50 Billion by 2020 a CAGR of ~16.5% which really is hyper-growth by anyone's calculations especially for an industry with 25+ years of history in India.

To borrow a metaphor provided before to HfS by Anantha Radhakrishnan, SVP and Global Head of Enterprise Services at Infosys BPO, we liken the final goal that NASSCOM wants to create with this $50 Billion to the equivalent of an especially tasty meal of an Indian Biryani (a mixed rice dish comprised of many different ingredients that also has many different regional variants across India) made up of various existing ingredients that the BPM industry has at its disposal today, plus a few that are just now emerging. Based on the panel discussions and all of the hallway conversations during the Summit, we identified the following as being the key ingredients that most NASSCOM members believe will comprise the final dish.

The existing base ingredients in this Bangalore Biryani:

» Analytics. Perhaps the most recurring topic through the Summit was whether analytics could be the driver for BPM growth through 2020 that Y2K was for the Indian IT industry in the late 90's. We sat in on discussions around pricing models and operating models in analytics along with whether clients would be most interested in offerings based on descriptive or predictive analytics solutions. Some panelists stated that analytics could be the second biggest area in Indian BPM export mix by

We called it three years’ ago and we can now officially proclaim that the industry once known as "research" is close to meeting its maker.

Okay, the reality is it’s rare these days for analysts to comb for obscure facts, ask the hard questions, reach out to customers, dig deep with the system integrators, and circumvent corporate communication teams by going direct to employees for the inside scoop.

In fact, the alarming observation of analysts, especially in the large firms, is that most of them are spending all their time on evaluation matrices (e.g. MQs, Waves, Marketscapes, etc.). There seems to be precious little (or any) research coming out of these places anymore. Where are the big ideas? Where’s the insight? Where’s the thought leadership? What do these people stand for anymore?

When we sat down to talk to our client base, our analysts, and our clients, we determined that there were eight common reasons, namely:

1. Legacy business models are built on scare-to-play. The only way the legacy firms are making money is through selling reprints of vendor positionings. Sales folks tell vendors that if they don’t pay for briefing hours and advisory time, analysts will ignore them.

2. Tele analyst approach reinforces an ivory tower image. Today’s legacy analysts have no other means of getting data. Sadly, most rarely ever talk to buyers of services or users of technology. The situation is so bad, that many vendors are forced to provide 15 to 50 customer references because the analyst has no means to reach out to real customers.

3. Stone soup research model reflects the laziness of analyst firm methodologies. They are essentially having the vendors do their “research” for them. Another way to look at this, legacy analyst firms are strong-arming vendors into providing references as their primary method of reaching out to customers. Some analysts today are demanding three hour briefings with vendors to educate them - they are essentially making vendors pay to give them the knowledge they need to appear smart.

4. Egotistical narcissism drives power trips in evaluations. Legacy analysts love the attention of vendors pandering to their demands. In one case, a legacy analyst asked for 35 client references for

After SAP lashed out $8.3 billion on Concur, it's making Cognizant's flagship acquisition of TriZetto look like the bargain of the decade. So we grabbed a few minutes with Cognizant's CEO, Frank D'Souza, to talk about why the US-headquartered company made this move and what we can expect to see unravel as a result...

Phil Fersht, HfS: Frank, in a nutshell, why did you make this investment?

Frank D'Souza, Cognizant: Hi Phil - the acquisition of TriZetto is in response to some powerful trends that are fundamentally changing the U.S. healthcare industry today—including the Affordable Care Act, shifting responsibilities between payers and providers, and the desire for employers to contain risk and reduce cost. By combining technology and operations, we have a phenomenal opportunity to build ‘the winning business model of tomorrow’ and play a key role in keeping people healthy and well.

Today, approximately half of the U.S. insured population have their health benefits managed by TriZetto software, and we see tremendous synergy opportunities to join that with our $2.5 billion healthcare and life science practice. By marrying TriZetto’s world class products with Cognizant’s consulting, IT and business process services, we are confident that we can capitalize on opportunities that neither company could access individually.

This move is also consistent with our overall three-horizon strategy, and brings new markets, new technologies and new delivery models to our portfolio. It moves us very significantly in the direction of adding non-linear, IP based revenue.

Phil, HfS: How will this change Cognizant? Doesn’t this turn you into a software firm, in addition to services? How will this impact your culture and they way you work with clients? Will you need to bring in new skillsets of sales/marketing/engineers, etc.?

Frank, Cognizant: We are committed to offering services across a range of products and technologies. We also believe that there is a growing demand for fully-integrated technology and operations using newer delivery models made possible by Cloud and digital technologies. These so called BPaaS or utility models are very powerful and this is what TriZetto represents for us in healthcare.

Our approach has always been to start with the market and focus on how best to satisfy our clients’

What ever happened to the days of the tiddly little sub-$10m "tuck-in" acquisitions that Indian providers used to make (and we all forgot about pretty quickly afterwards)? Well, the game has changed forever as Cognizant shelled out a whopping $2.7 Billion on healthcare technology firm TriZetto (read our research POV here).

This wasn't only Cog's largest acquisition - it's the largest one - by a country mile - from any Indian IT/BPO services major. Ever:

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Four reasons why this changes the game for services:

1. Cognizant becomes a true BPaaS, software and services firm. Most of the pureplay services firms buy little technology tucks-in to improve their services, and have technology tools and platforms that differentiate them with proprietary workflow and IP. However, services firms have always sold services first and foremost, with software as the value differentiator that creates client stickiness and allows greater scalability of skills and standard processes. By acquiring a platform the size and scale of TriZetto, suddenly Cognizant is adapting to selling software, and not just service provision. In my opinion, the only way true BPaaS will ultimately be successful is when the services firms elect to sell the software first and then figure out with the client how to implement it, redesign the processes, do the change management etc. I call this the "Workday effect". Essentially, have the client fall in love with the software, slam it in, then figure out the rest afterwards. It's like buying Google - they just force you to figure it all out after you've been bought into using their platform.

2. BPaaS will replace legacy outsourcing - it's just a matter if time. As our new State of Outsourcing data illustrates, close to one-in-three enterprises are already using (or about to use) BPaaS / cloud as an alternative to legacy outsourcing in areas such as HR, industry-specific operations (such as TriZetto), finance and accounting and procurement:

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Having a provider which understands - and can implement - a cloud platform, support the transformation and provide the necessary services that add real value to the front-office is the Holy Grail for many buyers. With half of today's outsourcing contracts potentially up for grabs, those providers with genuine platform plays are in pole position to pick off legacy outsourcing contracts that have hit the wall, in terms of finding future value.

3. Healthcare becomes the new "financial services" for IT/BPO. In the past, most of the big bucks in industry-specific IT/BPO was in sorting out the quagmire of complexity, dysfunction and legacy in the banking and financial services space. Now, with the ACA hitting us in full-force, it's plainly apparent that there's a ton of opportunity taking healthcare payers and providers into BPaaS and sophisticated outsourcing models. Watch this space for further acquisitive moves in this sector, where tech-centric healthcare suppliers, such as Emdeon and McKesson, are becoming increasingly attractive targets.

4. The BPaaS gauntlet in thrown down to Accenture, TCS, Infosys and Wipro to respond. Cognizant's main competitors are rocked by this one - and they need to figure out how to raise the ante with their own BPaaS plays. Infosys is enjoying a return of its mojo, with a software innovator Vishal Sikka now at the helm and figuring out its EdgeVerve strategy, Accenture has brought together Operations (including BPO) and Cloud Infrastructure to form a super group of BPaaS potential, Wipro has enjoyed a solid rebirth under TK Kurien and has been doing some cool things with Base))) and its mortgage platform play, while TCS has long been a pioneer of "PlatformBPO" with a series of developing offerings, notably in the insurance and banking space. Oh - and let's not forget dear old IBM, who's off trying to cure cancer with Watson...

The Bottom-line: Cognizant has upped the ante... Now it's time for the ambitious providers to open their war-chests

You can just feel it in the air, can't you? The global economy's buzzing again, ambitious enterprises are willing to spend again. Meanwhile, the ITO labor arbitrage game is finally showing signs of drying up - and Cognizant, a major bell-weather for the health of offshore services, has responded with a massive, massive bet on the future of the industry - and few would dare to fault this move.

Now the winners need to place their bets on the solutions and industries where they can find new growth opportunities - they all have serious funds available, and can likely get access to even more capital if they need to. There are clear yawning gaps in the market for (more) winning BPaaS offerings in areas such as finance and accounting, supply chain, retail and manufacturing... not to mention healthcare, life sciences and financial services. The future path for BPaaS is really starting to unravel and we'll likely know in the next 18 months who's willing to make the investments and business model changes needed to evolve with it.

Yes folks, we've unveiled our agenda for the Eighth Blueprint Summit this November, which includes C-Suite executives from all the major service providers and sourcing advisory firms, in addition to a host of speakers from leading buy-side enterprises. So let's take a peak at the providers putting themselves in the firing line...

This man founded WNS, built up IBM's Middle East and African Practice and today leads KPMG's European shared services and outsourcing advisory. He also cycles a lot...

Did you hear the one about the Mamil (middle aged man in lycra), who got off his bike, donned a suit and tie and joined a Big 4 consulting firm to wax lyrical about sourcing strategy? And not only that, he is called Shamus Rae, the shameless sourcing strategist from Islington...

Shamus has been in the sourcing business since 1993, where he started off working with British Airways and overseeing a lot of outsourcing of IT services to India. This is when he came up with the idea to build a company to act as an offshore BPO for the airline industry, which became WNS. In addition, Shamus built IBM’s BPO Service from zero to 17,000 people in MEA (Middle East and Africa). In total, he's had 21 years in the industry working for suppliers, including 13 years working with clients on multi-functioned shared services and outsourcing around the world. And all this in addition to his 120 km a week cycling addiction.

So let's hear from KPMG's European Partner for Operational Transformation and Advisory Leadership, Shamus Rae.

Phil Fersht, CEO, HfS Research: Good afternoon, Shamus, and thank you very much for taking the time with us today. Let's cut to the chase - are US enterprises ahead of the British/Europeans with sourcing?

Shamus Rae, Partner at KPMG, London: Categorizing “Europe” as one homogeneous region is too generic. The United Kingdom, plus Switzerland, are as sophisticated as the United States, and sometimes more cutting edge. However, other European countries are in catch-up mode. We’ve been doing some work recently for a large French bank helping them build a global sourcing strategy for their finance function. I asked the CFO whether he wanted to simply do a strategy or whether he was actually going to execute. We get many requests for sourcing strategies for organisations, of which a high number are never executed, but take up a significant amount of time for my team. To be fair to this client, he said that this time the bank is going ahead, and in fairness to him, he’s now built an offshore center of excellence on a global basis. In a nutshell, Europe is in catch-up mode but they’re positioned to leapfrog the United States.

Phil: At our recent UK Blueprint event at HfS, attendees were more open with their issues than many of the Americans that we regularly deal with...

Shamus: The fashionable trend is talking about robots in shared services. The way these concepts are branded is a bit too much sometimes. If you talk about operational efficiency and the future of robotics with French and German colleagues or clients, it can be too American. The best approach is to engage different countries in the right way for them and ensure there are relevant discussions on all of these topics and trends that are emerging

Phil: Is the industry vastly different from five years ago when we were going into the recession? Has there been a lot of shift, or is it more noise?

Shamus: There’s been a massive shift. I've been through a few recessions but none quite as significant as 2008. Previously companies were mostly focusing on straightforward labor arbitrage

We've been calling it for seven years now, and finally the chickens are coming home to roost for the outsourcing business: clients are genuinely walking away from outsourcing relationships which provide mediocre value.

And, while some savvy providers are sensing the defections with a few notable re-bid wins of late, many still have their heads in the sand and hoping that once they win a new client, they'll never leave them... oh how wrong they could be, as revealed by 312 enterprise buyers during our new State of Outsourcing study with KPMG:

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So, why are so many outsourcing relationships hitting the skids?

While we're at pains to point out that relationships fail to deliver innovation where buyers lack the skills and capabilities, it's also blindingly obvious that many providers are not coming to the table with the goods either:

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As you can see, it's the same old story - in fact, buyer satisfaction has actually got worse over the last three years (see our 2011 State of Outsourcing results). At least, back then, the large majority of enterprise clients enjoyed some degree of value from their relationship, while today, barely a third of buyers are seeing positive impact in terms of having improved strategic talent, better operational analytics support, better technologies, process transformation, automation... the list goes on.

The three main issues driving this churn problem - and how providers can address them more effectively

1) Buyers' expectations - and impatience levels - have markedly increased. The world of business operations has evolved at an almost alarming clip over the last five years - it's as if the recovery from the worst recession in living memory has driven an impatience from business leaders to advance their capabilities and cost efficiencies much faster than the snail's pace of yesteryear, when ERP rollouts were calculated by the decade and outsourcing evaluations took three years just to get a meeting together. Suddenly, buyers want to talk about where they expect to be in a couple of years, they're asking questions about robotic automation and developing meaningful analytics capabilities, they're asking how their provider can help them improve the way they do things - not merely manage their legacy processes at cheaper rates.

How providers need to respond: Prepare more diligently to manage your clients over the longer-term. You know many are going to start asking for the "what's next?" quicker than you expected, so be prepared with a plan to deliver it. Otherwise, they may no longer be your client when the re-bid process kicks in....

2) Most providers are still obsessing with the next deal, as opposed to cementing their existing relationships. The real "tangible" money on the table for providers today, is when they win a brand new deal that adds to their win-rate, their Wall Street scripts and feeds their PR machine. However, the cost of losing a client is far, far worse - the lost income, the ignominy, the negative perception from the industry. As more deals begin to churn, the focus will shift to protecting the base, and not just pursing the new.

How providers need to respond: Start replacing the old-school sales guys with the fat expense accounts and standard issue BMWs or Jags (you know the type) with operationally-savvy account managers who understand how operations need to be run. While they may be less fun on the golf course, they'll be much better-placed to develop your clients down the road.

3) Buyers still think that innovation should be free, despite the fact they bought labor arbitrage. If you didn't pay for it, why should you get any? The perennial problem with outsourcing is the fact that low-cost still wins the day, with most sourcing advisors strong-arming providers to respond to RFPs in three weeks and allowing very little (if any) interaction time for providers to interact with their clients in advance to develop the right solution and get a stronger balance between delivery capability and desired outcomes. In most these cases, the buyer and provider teams brokering the deal hand them off to the operations teams on both sides to manage, with little room for investment on either side to do anything more than basic delivery with low-end resources.

How providers need to respond: Invest in more direct communications and sales cycles with clients, and be less reliant on the advisor channel for your future business. You need to develop relationships where you can spend more time with your clients to get this right, not second guess their needs and rely on some fudged math to get a deal done.